Life Planning Presentation

Life Plan Exercise

Mike Franklin

IE6305, Spring 2014

Life Plan – Values & GoalsLife Plan – Values & Goals

• Values

– Trusting, abiding, and glorifying Jesus Christ in every area of my life

– Leaving a spiritual legacy

– Strong family connections

– Career and influence on products I design and support to protect the

American warfighter

– Education and the avenues it has opened

– Financial resources and the ability to pay for both daughters college

and wedding expenses

• Goals

– Graduate with a Masters Degree; potentially pursue 2nd Masters Degree

– Fund both daughter’s through a state college 4 year degree

– Fund both daughter’s weddings

– Buy land before retirement and build dream house

– Die with no regrets (faith/family/career)

Quicken AnalysisQuicken Analysis

• About Me (as modeled):

– Married, 2 dependents

– Combined annual salaries: $176K

– Current effective tax rate: 21%

– After-retirement tax rate: 21%

– Inflation rate: 4%

– Current savings: $32K

– Current investments: $246K

– Total assets: $330K

– Current yearly living expenses: $64K

� Includes weekly charity/tithe, medical and other insurances, living expenses, etc.

• Estimated to have $1.99M in investments at retirement

– Amount to subsequently increase to $2.5M ceiling as spouse retires 7 years

later and pension will supplement other retirement account until my death

On Track for Savings Goals and Retirement

Quicken Exercise Lessons LearnedQuicken Exercise Lessons Learned

• Conducting this exercise has resulted in determination of the following Life Plan needed alterations:

– College funds for both daughter’s are not supportable with standard bi-monthly

savings account deposits (@ 0.75% ROR)

� Contributions to independent savings accounts have been temporarily increased to

support end goal, and;

� An alternate college planning vehicle is being explored to

replace current savings account methodology

� Section 529 Account

� Custodial Account (AGMA/UTMA)

� Coverdell Education Savings Account

– Wedding fund bi-monthly contributions for both daughter’s were not sufficient

for estimated costs for a ‘sufficient’ (as defined by spouse) wedding a quarter of

a century away

� Original goal of $20K/daughter has been increased to $50K/daughter

– 401K was being ‘Maxed-out’ and was reduced to employer match with residual

funds directed into a brokerage account

� Reduce tax-deferred dollars to reduce federal tax balloon payment at retirement

Comparing Various 529 Products from

Several Companies

Baseline Life Plan - AnalysisBaseline Life Plan - Analysis

• Planned life expectancy: 82 years old

– (history of family cholesterol issues but actively managing and monitoring)

• Planned work expectancy: 2000-2041

• Planned retirement date: 11/2041 (Age 65)

– Number of years in retirement: 17

• Net worth at retirement: $1.99M

• Net worth at death: $~2.5M

• Investment Returns:

– My tax-deferred accounts: Before retirement: 7% After retirement: 7%

– Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

– All other accounts: Before retirement: 0.75% After retirement: 0.75%

• Planned Living expenses:

– Before Retirement and prior to children completing 4 year college degree: $64.3K

– Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K (today’s dollars)

• Planned College expenses:

– Total Cost: $84K per daughter (today’s dollars, 6%/yr college inflation rate used in model)

• Planned Special expenses:

– Prior to exercise was: $20,000 per daughter

– After exercise and what results are now based upon: now: $50,000 per daughter

Financial plans support life plan adequately

6

LIFE VALUES, GOALS, MAJOR ACCOMPLISHMENTS

1976

-80 1980-1990

Biology

Various Part Time Jobs

Faith

Birth

Remaining Life

1990-2000 2000-2010 2010-2020 2020-2030 2030-2040 2040-2050 2050-2060 2060-2070 2070

-74

My EducationVaultModel Updates

My Career

Family

Estimated Death

Expended Life

Accepted Jesus as Savior Ascend into Heaven

Biology

Calvary Bap. Garland Cent.Bap.

C.S. 1st Arl. 1st Colleyville

Met Spouse

Absent

Retire @ 65

Public School H.S. College Continuous Education through Corporation Initiatives

Graduated High School Graduated College B.S. IE Graduate M.S. Engr. Mgmt

Married Spouse

1st Child Born

1st Child College Starts

2nd Child College Starts

1st Child Wedding

2nd Child Wedding

Program Management

NASA

Lockheed Martin LLLL

Various Part Time Jobs

Spouse’s EducationVault

Spouse’s Career

Retire @ 65

Public School H.S. College Grad. S. Continuous Education through Corporation Initiatives

Graduated High School

NICU RN Pediatric Nurse Practitioner

Cook Children’s

John Peter Smith Health System

DwellingsDream Home Mortgage (if required)

1st Home Purchased

Sys. Safety Engr.

Build Dream Home w/ Land

Pay off Dream Home

Mortgage

Bedford Home Mortgage

Refinanced to 15yr @ 2.75%

2nd Home Purchased

Graduated Undergrad PRN

Graduated Masters PNP

2nd Child Born

Grad. S.

Lead Adult Bible Fellowship

Ordinated as Deacon

Director Enterprise V.P.

Spouse’s Estimated Death

Pay off Bedford Home Mortgage

7

Detailed Career Plan

2000-2005 2005-2010 2010-2015 2015-2020 2020-2025 2025-2030 2030-2035 2035-2040 2040-2045

EducationVaultModel Updates Continuous Education through Corporation Initiatives

Graduated College B.S. IE Graduate M.S. Engr. Management

Began work @ NASA

Robotics SR&QA Lead for ISS

Grad. School

2000-2005

Program Management

Sys. Safety Engr. Asc. MLRS Programs

Sys. Safety Engr. Senior PAC-3 Programs

Sys. Safety Engr. PAC-3 Programs

Promoted to LM Level 5 Engineer

Promoted to LM Level 4 Engineer

Promoted to LM Level 3 Engineer

Promoted to LM Level 2 Engineer

Began work @ Lockheed Martin

Director

Enterprise V.P.

Sys. Safety Engr. Staff PAC-3 Programs

Program Management

Sys. Safety Engr. Sr. Staff A&MD Programs

Promoted to LM Level 6 Program Manager

Promoted to LM Level 7 Director

Promoted to LM Level 8 VP Retire @ 65

8

Baseline Life Integrated Master Plan (IMP)

1976

-80 1980-1990

Biology

Various Part Time Jobs

Birth

Remaining Life

1990-2000 2000-2010 2010-2020 2020-2030 2030-2040 2040-2050 2050-2060 2060-2070 2070

-74

My EducationVaultModel Updates

My Career

Family

Estimated Death

Expended Life Biology

Retire @ 65

Public School H.S. College Continuous Education through Corporation Initiatives

Graduated High School Graduated College B.S. IE Graduate M.S. Engr. Mgmt

Married Spouse

1st Child Born

1st Child College Starts

2nd Child College Starts

1st Child Wedding

2nd Child Wedding

Program Management

NASA

Lockheed Martin LLLL

DwellingsDream Home Mortgage (if required)

1st Home Purchased

Sys. Safety Engr.

Build Dream Home w/ Land

Pay off Dream Home

Mortgage

Bedford Home Mortgage

Refinanced to 15yr @ 2.75%

2nd Home Purchased

2nd Child Born

Grad. S.

Director Enterprise V.P.

Spouse’s Estimated Death

Pay off Bedford Home Mortgage

Financial Highlights

• Portfolio value at retirement = $1.99M

• Current recurring savings for children’s

college and wedding expenses equal to

required target recommendation

• Existing mortgage settled in 2026, prior to

first child starting college

• Future dream house mortgage (if

required) begins after second child

finishes college

• Early retirement feasible, if desired at that

time

What If / Sensitivity

Analysis Summary

Perceived Positive Impacts

Baseline Plan 1: Lower Retirement Age (Age 62)

2: Incr. ROR to Non Tax-Def. Investments (3%)

3: Live Longer (Age 85)

4: Self Manage 401K Equities (Annual ROR of 15%)

Net Worth at Retirement $1.99M $1.76M $2.0M

$1.99M (No affect)

$6.9M

Net Worth at Death $2.5M $2.4M $2.7M

$2.5M (no affect)

$24.5M

Perceived Negative Impacts

Baseline Plan 5: Save More (plus up 5%)

6: Increase Inflation Rate (from 4->5%)

7: Reduce Cost of Future Dream Home

8: Model a Layoff

9: Early Death

Net Worth at Retirement $1.99M $2.13M $1.59M

$1.99M (No affect)

$1.39M N/A

Net Worth at Death $2.5M $2.68M $1.8M

$2.5M (no affect)

$1.87M $1.3M

Stacked Impacts

Baseline Plan 10: Combine Scenarios 2&5

11: Combine Scenarios 1, 6, & 8

12: Combine Scenarios 6, 8, & 9

Net Worth at Retirement $1.99M $2.2M $1.0M N/A

Net Worth at Death $2.5M $2.8M $1.3M $790K

Scenarios ModeledScenarios Modeled

Worst Case Scenario Modeled Yields $790K @ Death

Best Case Realistic Scenario Modeled Yields $2.2M @

Retirement and $2.8M @ Death

Sensitivity Analysis ConclusionsSensitivity Analysis Conclusions

• No one single ‘perceived negative (or positive) impact’ event degrades life plan to an unacceptable level

• To achieve the best case stacked scenario modeled (#10), current Capital One Savings accounts yielding 0.75% ROR is insufficient

– Other investment strategies with low to medium risk need to be explored

• If the worst case stacked scenario modeled (#12) does occur, sufficient funds will be available to fully fund dependents college and

weddings and to provide a sufficient lifestyle for spouse until her

death

• Path forward Actions:

– Downselect and procure 529 product for each daughter

– Move Captial One General Savings into a brokerage account and

distribute current and future contributions into a diversified portfolio

Backup

What If Scenarios Details

What If Scenarios

Presumed Positive Impacts to Quality of Life

What If Scenario #1What If Scenario #1

• Scenario: Lower Retirement Age – Planned life expectancy: 82 years old

– Planned work expectancy: 2000-2041

– Planned retirement date: 11/2039 (Age 62)

� Number of years in retirement: 20

– Net worth at retirement: $1.76M

– Net worth at death: $~2.4M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: .75% After retirement: .75%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter

Green Text Indicates Changed Variable or Affected Results

What If Scenario #2What If Scenario #2

• Scenario: Adjust Rate of Return to All non Tax-Def. Investments

– Planned life expectancy: 82 years old

– Planned work expectancy: 2000-2041

– Planned retirement date: 11/2041 (Age 65)

� Number of years in retirement: 17

– Net worth at retirement: $2.0M

– Net worth at death: $~2.7M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: 3% After retirement: 3%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter

Green Text Indicates Changed Variable or Affected Results

What If Scenario #3What If Scenario #3

• Scenario: Live Longer – Planned life expectancy: 85 years old

– Planned work expectancy: 2000-2041

– Planned retirement date: 11/2041 (Age 65)

� Number of years in retirement: 20

– Net worth at retirement: $1.99M

– Net worth at death: $~2.5M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: .75% After retirement: .75%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter

Green Text Indicates Changed Variable or Affected Results

What If Scenario #4What If Scenario #4

• Scenario: Adjust Rate of Return to Tax-Def. Investments

– Planned life expectancy: 82 years old

– Planned work expectancy: 2000-2041

– Planned retirement date: 11/2041 (Age 65)

� Number of years in retirement: 17

– Net worth at retirement: $6.9M

– Net worth at death: $~24.5M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 15% After retirement: 15%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: .75% After retirement: .75%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter

This is the Wishful Thinking Scenario!

CY2013 401K Yielded Over 28% By Self Managing 35%

of Assets

Green Text Indicates Changed Variable or Affected Results

What If Scenarios

Presumed Negative Impacts to Quality of Life

What If Scenario #5What If Scenario #5

• Scenario: Save More – (Plus up 5% Post Tax Dollars > Savings / Week)

– Planned life expectancy: 82 years old

– Planned work expectancy: 2000-2041

– Planned retirement date: 11/2041 (Age 65)

� Number of years in retirement: 17

– Net worth at retirement: $2.13M

– Net worth at death: $~2.68M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: .75% After retirement: .75%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter

Green Text Indicates Changed Variable or Affected Results

What If Scenario #6What If Scenario #6

• Scenario: Increate Inflation Rate – Inflation Rate Increased (4 -> 5%)

– Planned life expectancy: 82 years old

– Planned work expectancy: 2000-2041

– Planned retirement date: 11/2041 (Age 65)

� Number of years in retirement: 17

– Net worth at retirement: $1.59M

– Net worth at death: $~1.8M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: .75% After retirement: .75%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter

Green Text Indicates Changed Variable or Affected Results

What If Scenario #7What If Scenario #7

• Scenario: Reduce Cost of Dream Home & Future Loan

– Planned value of home from $750K -> $500K

– Planned life expectancy: 82 years old

– Planned work expectancy: 2000-2041

– Planned retirement date: 11/2041 (Age 65)

� Number of years in retirement: 17

– Net worth at retirement: $1.99M

– Net worth at death: $~2.5M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: .75% After retirement: .75%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter

Green Text Indicates Changed Variable or Affected Results

What If Scenario #8What If Scenario #8

• Scenario: Model a Layoff – Assume layoff 1/1/2015, un-employed for 2 years,

re-employed with salary reduced to $85K on 1/1/2017

– Planned life expectancy: 82 years old

– Planned work expectancy: 2000-2041

– Planned retirement date: 11/2041 (Age 65)

� Number of years in retirement: 17

– Net worth at retirement: $1.39M

– Net worth at death: $~1.87M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: .75% After retirement: .75%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter

Green Text Indicates Changed Variable or Affected Results

What If Scenario #9What If Scenario #9

• Scenario: Early Death – Planned life expectancy: 55 years old

– Planned work expectancy: 2000-2032

– Planned retirement date: 11/2041 (Age 65)

� Number of years in retirement: 0

– Net worth at death: $1.3M

– Net worth at death + insurance payout: $1.6M

� Life Insurance currently at 4X qualified pay = $525K payout

– Net worth at spouse’s death with insurance: $~1.9M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: .75% After retirement: .75%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter

Model w/o Life Insurance Model w/ Life Insurance

Green Text Indicates Changed Variable or Affected Results

What If Scenarios

Stacked Sensitivities

What If Scenario #10What If Scenario #10

• Scenario: Adjust Rate of Return to All non Tax-Def. Investments

& Save More – (Plus up 5% Post Tax Dollars > Savings / Week)

– Planned life expectancy: 82 years old

– Planned work expectancy: 2000-2041

– Planned retirement date: 11/2041 (Age 65)

� Number of years in retirement: 17

– Net worth at retirement: $2.2M

– Net worth at death: $~2.8M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: 3% After retirement: 3%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter

Green Text Indicates Changed Variable or Affected Results

What If Scenario #11What If Scenario #11

• Scenario: Lower Retirement Age, Increase Inflation Rate, & Model

a Layoff – Inflation Rate Increased (4 -> 5%)

– Assume layoff 1/1/2015, un-employed for 2 years,

re-employed with salary reduced to $85K on 1/1/2017

– Planned life expectancy: 82 years old

– Planned work expectancy: 2000-2041

– Planned retirement date: 11/2039 (Age 62)

� Number of years in retirement: 20

– Net worth at retirement: $1.0M

– Net worth at death: $~1.3M

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: .75% After retirement: .75%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter Green Text Indicates Changed Variable or Affected Results

What If Scenario #12What If Scenario #12

• Scenario: Increase Inflation Rate, Model a Layoff, and Die Early

– Inflation Rate Increased (4 -> 5%)

– Assume layoff 1/1/2015, un-employed for 2 years,

re-employed with salary reduced to $85K on 1/1/2017

– Planned life expectancy: 55 years old

– Planned work expectancy: 2000-2032

– Planned retirement date: 11/2041 (Age 65)

� Number of years in retirement: 0

– Net worth at death: $790K

– Net worth at death + insurance payout: $1.2M

� Life Insurance currently at 4X qualified pay = $525K payout

– Net worth at spouse’s death with insurance: $~950K

– Investment Returns:

� My tax-deferred accounts: Before retirement: 7% After retirement: 7%

� Spouse tax-deferred accounts: Before retirement: 7% After retirement: 7%

� All other accounts: Before retirement: .75% After retirement: .75%

– Planned Living expenses:

� Before Retirement and prior to children completing 4 year college degree: $64.3K

� Post mortgage settlement (CY2026) and children completing 4 year college degrees: <$75K

– Planned College expenses:

� Total Cost: $84K per daughter

– Planned Special expenses:

� After exercise and what results are now based upon: now: $50,000 per daughter Green Text Indicates Changed Variable or Affected Results